VSE Corporation VSEC, a leader in aftermarket distribution and repair services, has announced its agreement to acquire Kellstrom Aerospace, a key player in the commercial aerospace engine aftermarket. The acquisition, valued at approximately $200 million, includes $185 million in cash and $15 million in VSE stock. The deal, expected to close in the fourth quarter of 2024, aligns with VSE’s strategic plan to enhance its aviation segment by expanding its global reach and increasing exposure to the fast-growing commercial aerospace engine aftermarket.

Strengthening VSE’s OEM-Centric Strategy

Kellstrom's focus on commercial aerospace engines complements VSE Aviation's existing operations. More than 95% of Kellstrom's revenue is derived from long-standing relationships with original equipment manufacturers (OEMs), a critical factor in VSE’s strategy. This partnership will allow VSE to gain more exposure to the rapidly growing aircraft engine maintenance market, boosting its OEM-focused distribution and repair services. The combined companies will service more than 30 OEMs and 800 customers worldwide, providing VSE with a broader product portfolio and enhanced technical services.

Expanding Global Reach and Unlocking Synergies

Kellstrom generates about half of its revenue from international markets, especially in high-growth regions like Asia-Pacific. This expanded global footprint provides VSE with greater market access and growth opportunities. VSE expects to achieve operational synergies of $4 million by integrating Kellstrom’s operations, which will also lead to a near-term path to more than 15% adjusted EBITDA margins.

Positive Financial Outlook of VSE

The acquisition is expected to be funded by a combination of equity financing and VSE’s existing credit facility. Upon closing, VSE projects its net leverage ratio to remain below 3.5x. Additionally, VSE’s preliminary third-quarter 2024 results show revenues between $268 million and $275 million, with adjusted EBITDA in the range of $31-$34 million. This performance indicates a robust quarter for VSE’s Aviation segment, reinforcing the positive impact Kellstrom will bring once fully integrated.

VSEC’s Share Price Performance

Image Source: Zacks Investment Research

VSEC shares have gained 39.3% year to date, outperforming the Zacks Engineering - R and D Services industry’s 30.4% rise. Though VSEC currently carries a Zacks Rank #4 (Sell), by acquiring Kellstrom, VSE is positioning itself as a stronger competitor in the aviation aftermarket, poised for accelerated growth and improved financial performance.

Key Picks

Some better ranked-ranked stocks in the Construction space are:

M-tron Industries, Inc. MPTI currently sports a Zacks Rank #1 (Strong Buy). It has topped earnings estimates in three of the trailing four quarters and missed once, with an average surprise of 9.2%. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for MPTI’s 2024 earnings per share (EPS) indicates a rise of 76.6% from prior-year levels. MPTI shares have gained 37.9% so far this year.

Knife River Corporation KNF presently flaunts a Zacks Rank #1. KNF has a trailing four-quarter earnings surprise of 33%, on average.

The Zacks Consensus Estimate for KNF’s 2024 sales and EPS indicates a rise of 3.2% and 15.2%, respectively, from the prior-year levels. KNF shares have gained 37.5% so far this year.

Quanta Services, Inc. PWR presently carries a Zacks Rank #2 (Buy). Quanta has a trailing four-quarter earnings surprise of 4.6%, on average.

The Zacks Consensus Estimate for PWR’s 2024 sales and EPS indicates a rise of 14.1% and 20.1%, respectively, from the prior-year levels. PWR shares have gained 41.6% this year.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Quanta Services, Inc. (PWR) : Free Stock Analysis Report

VSE Corporation (VSEC) : Free Stock Analysis Report

M-tron Industries, Inc. (MPTI) : Free Stock Analysis Report

Knife River Corporation (KNF) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research